This article examines whether volatility risk is a priced risk factor in securities returns. Zero-beta at-the-money straddle returns of the Samp;P 500 index are used to measure volatility risk. It is demonstrated that volatility risk captures time variation in the stochastic discount factor,...

It is well documented that stock returns have different sensitivities to changes in aggregate volatility, however less is known about their sensitivity to market jump risk. By using Samp;P 500 crash-neutral at-the-money straddle and out-of-money put returns as proxies for aggregate volatility...

This article examines agents' consumption-investment problem in a multi-period pure exchange economy where agents are constrained with the short-sale of state-dependent risky contingent claims. In equilibrum, agents hold options written on aggregate consumption in their optimal portfolios....

The Capital Asset Pricing Model (CAPM) assumes either that all asset returns are normally distributed or that investors have mean-variance preferences. Given empirical observations of asset returns, which document evidence of skewness and kurtosis, both assumptions are suspect. While several...

The study of Ferguson and Shockley (2003) shows that, if the Merton (1974) model can reflect reality, the omission of debt claims from the market portfolio proxy may explain the poor pricing ability of the CAPM in empirical tests. We critically re-assess this argument by first reviewing...

We compare the long run reaction to anticipated and surprise information announcements using stock splits. Although there is underreaction in both cases, anticipated splits are treated differently to those that are unforeseen. After anticipated splits, cumulative abnormal returns peak at...

We compare density forecasts of the Samp;P 500 index from 1991 to 2004, obtained from option prices and daily and five-minute index returns. Risk-neutral densities are given by using option prices to estimate diffusion and jump-diffusion processes, that incorporate stochastic volatility, and...

The aim of this paper is to establish a basic framework of financing with a highly flexible instrument, of Participating Mortgages (PMs), to improve the efficiency of the financial system. We distinguish these from convertible mortgages and derive closed-form solutions to price a whole framework...

Asset price volatility appears to be more persistent than can be captured by individual, short memory, autoregressive or moving average components. Fractional integration offers a very parsimonious and tempting formulation of this long memory property of volatility but other explanations such as...

The aim of this paper is to establish a basic framework of financing with a highly flexible instrument, of Participating Mortgages (PMs), to improve the efficiency of the financial system. We distinguish these from convertible mortgages and derive closed-form solutions to price a whole framework...